A nonprofit is a tax-exempt organization that serves the public interest. In general, the purpose of this type of organization must be charitable, educational, scientific, religious or literary. This is a common and broad definition that fits the type of information likely to be found at this site. The public expects to be able to make donations to these organizations and deduct these donations from their federal taxes.

Legally, a nonprofit organization is one that does not declare a profit and instead utilizes all revenue available after normal operating expenses in service to the public interest. These organizations can be unincorporated or incorporated. An unincorporated nonprofit cannot be given federal tax-exempt status or the designation of being a 501(c)(3) organization as defined by the Internal Revenue Service. When a nonprofit organization is incorporated, it shares many traits with for-profit corporations except that there are no shareholders.

A for-profit corporation is authorized to issue stock to shareholders in exchange for the shareholders’ capital investments in the corporation. This capital investment often takes the form of money, equipment, other property, or services. Shareholders in a for-profit corporation receive a return on their investment only if and when dividends are declared and paid.

The motive for organizing is the best way to determine whether you should organize as a for profit or not-for-profit entity.

A nonprofit corporation under Internal Revenue Code Section 501(c)(3):

Cannot issue shares and cannot pay dividends.

Must not be organized or operated for the benefit of private interests, such as the creator or the creator's family, or persons controlled directly or indirectly by such private interests.

Must be operated exclusively for a religious, charitable, educational, literary or scientific purpose, or for testing for public safety, fostering national or international amateur sports competition, the prevention of cruelty to children or animals, or (some combination of the foregoing).

May not carry on propaganda or attempt to influence legislation as a substantial part of its activities.

May not participate in any campaign activity for or against political candidates.

Upon dissolution of the nonprofit, it must distribute its remaining assets to another nonprofit group, or to the federal government or to a state or local government for a public purpose (not to the individuals who originally contributed those assets to the nonprofit).

Must apply for tax-exempt status at both the federal and state levels.

A for profit corporation has many legal structures from which to choose.  Choose your legal structure carefully. It will determine what kind of taxes you’ll pay, who’s liable financially and legally and what forms to file.  Your choices are:

      Sole Proprietor

      Partnership

      C Corporation

      S Corporation

      Limited Liability Company (LLC)

The first step in becoming a corporation is drafting the legal incorporation document--the "certificate" or "articles" of incorporation--and filing the document with the appropriate office within your state government, usually the office of the Secretary of State or Attorney General.  Articles of Incorporation are the organizing documents that govern the operation of the organization.. 

A nonprofit corporation is a corporation that does not have a profit motive. A Nonprofit Corporation is generally organized for charitable purposes as defined by the Internal Revenue Service.  

A for-profit corporation is authorized to issue stock to shareholders in exchange for the shareholders’ capital investments in the corporation. This capital investment often takes the form of money, equipment, other property, or services. Shareholders in a for-profit corporation receive a return on their investment only if and when dividends are declared and paid.

For technical assistance in establishing a for-profit or nonprofit corporation, contact Strategic Resources and Solutions, Inc.  Phone 954-907-5462.

The benefits of having 501(c)(3) status include exemption from federal income tax and eligibility to receive tax-deductible charitable contributions. To qualify for these benefits, most organizations must file an application with, and be recognized by, the IRS.  

Individual and corporate donors are more likely to support organizations with 501(c)(3) status because their donations can be tax deductible. Recognition of exemption under section 501(c)(3) of the IRC assures foundations and other grant-making institutions that they are issuing grants or sponsorships to recognized charities.

For technical assistance in developing a 501(c)(3) application, e-mail us at info@resources-solutions.com.